G.R. No. 156637 /162004 December 14, 2005
PHILAM ASSET MANAGEMENT, INC. vs. COMMISSIONER OF INTERNAL REVENUE

FACTS

This case consolidates two petitions concerning claims for refund of excess creditable withholding taxes for 1997 and 1998. For 1997, petitioner Philam Asset Management, Inc., an investment manager, filed its annual income tax return showing a net loss, leaving an unutilized creditable tax withheld of ₱522,092.00. It filed an administrative claim for refund with the BIR, which was unacted upon, prompting a petition before the Court of Tax Appeals (CTA). For 1998, petitioner again declared a net loss, with an unapplied creditable withholding tax of ₱459,756.07. In its 1999 return, it declared this 1998 amount as a prior excess credit. It later filed an administrative claim for refund of this 1998 amount, which also remained unacted upon, leading to another CTA petition.
The CTA denied both refund claims. The Court of Appeals affirmed, holding that for 1997, petitioner’s failure to present its 1998 tax return was fatal, as it prevented verification of whether the 1997 credit could have been applied against 1998 liabilities. For 1998, the CA found that petitioner’s act of carrying over the amount to its 1999 return demonstrated an election for a tax credit, barring a subsequent claim for refund.

ISSUE

Whether petitioner is entitled to a refund of its excess creditable withholding taxes for the taxable years 1997 and 1998.

RULING

No. The Supreme Court denied the petitions. Under Section 76 of the 1997 Tax Code, a corporation must choose between a tax refund or a tax credit for excess quarterly income tax payments. The choice of one precludes the other. For the 1997 claim, the Court agreed with the CA that petitioner failed to discharge its burden of proof. A claimant must prove not only entitlement to a refund but also that the credit was not applied to succeeding years. Petitioner’s failure to submit its 1998 return left the Court unable to verify this, justifying the denial.
For the 1998 claim, the Court ruled that petitioner effectively elected the option to carry over the excess credit. Revenue Regulations No. 12-94 provides that failure to indicate a choice in the return results in the automatic carry-over of the credit to the succeeding taxable period. Petitioner’s subsequent act of actually declaring and applying the 1998 excess credit in its 1999 return confirmed this automatic application. This constituted a definitive election for a tax credit, which, once made, is irrevocable. Having chosen the credit option, petitioner was precluded from switching to a claim for refund. The Court emphasized that the option, once exercised, whether by affirmative marking or by operation of law due to inaction, cannot be subsequently changed.